BLBG:Euro Weakens Fifth Day on Bets ECB Will Cut Rates; Krone Rises
The euro weakened for a fifth day against the dollar as signs of economic weakness in the single currency bloc fueled speculation the European Central Bank will cut interest rates as soon as its meeting next week.
The 17-nation currency headed for its biggest weekly loss since February after data yesterday showed the region’s inflation unexpectedly slowed and the jobless rate climbed to a record. The yen strengthened against all except two of its 16 major counterparts as declines in stocks boosted demand for haven assets. Norway’s krone advanced after manufacturing expanded at the fastest pace since May 2012. A gauge of currency volatility rose for a second day.
“Markets are recalibrating their assumptions for what the ECB may do in the near future after those fairly shocking inflation numbers yesterday,” said Jeremy Stretch, head of currency strategy at Canadian Imperial Bank of Commerce in London. “It looks like the euro is going to test all the way back towards the support between $1.3450 and $1.3570,” he said, referring to levels where there may be buy orders.
The euro fell 0.4 percent to $1.3526 at 6:42 a.m. in New York, extending this week’s slide to 2 percent, the most since the period ended Feb. 8. The shared currency dropped 0.5 percent to 132.91 yen after sliding to 132.61, the lowest since Oct. 11. The yen strengthened 0.1 percent to 98.26 per dollar.
Lower Rates
Bank of America Corp., UBS AG and Royal Bank of Scotland Plc all forecast the ECB will cut rates on Nov. 7. BNP Paribas SA, Societe Generale SA, JPMorgan Chase & Co. and Scotiabank predict a reduction in December, when the central bank will publish new economic projections. The ECB last lowered its benchmark rate on May 2 to a record 0.5 percent.
The euro area’s annual inflation rate declined to 0.7 percent last month, the least since November 2009, from 1.1 percent in September, the European Union’s statistics office said yesterday. Euro-area unemployment was at a record 12.2 percent in September, separate data showed.
“The euro is being sold as weaker inflation data suddenly put an ECB rate cut back on the table,” said Etsuko Yamashita, chief economist at Sumitomo Mitsui Banking Corp. in New York. “For the euro to extend drops, we need to see an actual rate cut in Europe or a slew of strong data out of the U.S.”
The euro has slumped 1 percent this week, the worst performer after the Swedish krona of 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The dollar gained 1.3 percent and the yen rose 0.3 percent.
Volatility Rises
A measure of price swings among the currencies of Group of Seven nations rose to a two-week high. The JPMorgan G7 Volatility Index climbed six basis points to 8.02 percent after reaching 8.04 percent, the most since Oct. 17. It slid to 7.48 percent Oct. 28, the lowest this year.
The yen advanced for a second day versus the euro and dollar as the MSCI Asia Pacific Index of shares fell 0.5 percent and the Topix index of Japanese equities dropped 0.9 percent, boosting demand for the safety of the currency.
The Bank of Japan yesterday maintained its pledge to expand the monetary base by as much as 70 trillion yen and forecast inflation will reach its 2 percent target, even as some board members cautioned that price outlook was too optimistic.
Norway’s krone rose to a five-week high versus the euro after an index of manufacturing based on a survey of purchasing managers climbed to 53.6 last month, the highest since May 2012, damping speculation the central bank will cut borrowing costs.
The krone advanced 0.4 percent to 8.0381 per euro after appreciating to 8.0263, the strongest level since Sept. 24. The currency was little changed at 5.9426 per dollar.
‘Recovery Story’
“Today’s PMIs do not seriously question the Scandi recovery story,” Christin Tuxen, a senior analyst at Danske Bank A/S in Copenhagen, wrote in a note to clients. “Overall growth in the manufacturing sector is accelerating, hence reducing the risk of a Norges Bank cut. Euro-krone lower is indeed a natural reaction.”
Sweden’s krona fell for a fifth day against the dollar after a report showed factory output expanded less than economists forecast. Swedbank Markets said its gauge of factory output fell to 52 in October from 56 the previous month. A Bloomberg News survey predicted the gauge would decline to 54.5.
The krona dropped 0.3 percent to 6.5024 per dollar and was little changed at 8.7939 per euro.
To contact the reporters on this story: Mariko Ishikawa in Tokyo at mishikawa9@bloomberg.net; Lucy Meakin in London at lmeakin1@bloomberg.net
To contact the editor responsible for this story: Paul Dobson at pdobson2@bloomberg.net
